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CORE COMPETENCIES AND COMPETITIVE ADVANTAGE OF
INSURANCE FIRMS IN KENYA
BY
JONATHAN OMBATI MARUCHA
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT
OF THE REQUIREMENT FOR THE MASTER OF BUSINESS
ADMINISTRATION (MBA), SCHOOL OF BUSINESS,
UNIVERSITY OF NAIROBI
OCTOBER, 2012
ii
Declaration
This research project is my original work and has not been presented for the award of
degree in any other university or institution for any other purpose.
Signature …………………………………….. Date ……………………….
JONATHAN OMBATI MARUCHA D61/61884/2010
This research project has been submitted for examination with my approval as University
supervisor.
Signature …………………………………….. Date ……………………….
MS CAREN ANGIMA
LECTURER, SCHOOL OF BUSINESS
UNIVERSITY OF NAIROBI
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Acknowledgements
Indeed the task of completing this project has been made possible by the valuable input
of many people ranging from family, friends and even colleagues at work.
First and foremost, and with humble gratitude I give thanks to the Almighty God, who
provided me with the resources both mental and material and also the strength throughout
this journey of completing this project. I continue glorifying His Mighty Name.
Secondly, I deeply acknowledge the unwavering love and care I got from my family,
most importantly, my wife and son who sacrificed a lot for me to be able to carry out this
project to the end without hitches. They are a blessed people.
To my supervisor Ms. Caren Angima of the School of Business, who has been very
supportive and encouraging during this very challenging process from the start to the
final project which am now presenting herein. I sincerely appreciate the time you took to
read my work and for your guidance, encouragement and timely feedback. I also give
thanks to my lecturer and moderator; Prof. Ogutu for his guidance and insight in the field
of strategic management which was very handy.
Finally, I would also like to give exceptional thanks and gratitude to my special friends
Steve Muiga, George Owuor, Micah Atsobwa, and my elder sister Everline for their
sacrifice and consistent support especially during data collection. God bless you all.
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Dedication
I dedicate this work to my family especially my wife and son for their sacrifice that
enabled me to complete this project. They were the source of inspiration.
v
Abstract
This study focused on the strategic role of core competencies on competitive advantage
as applied by insurance companies in Kenya. The first step was to identify what the
various insurance companies considered to be their core competencies. The other
objective was to find out whether the identified core competencies are used by insurance
firms to gain or achieve a competitive advantage.
The research was conducted through a survey and primary data was collected through
structured questionnaires which were distributed to all insurance firms licensed to operate
insurance business in the Kenyan market. The data collected was presented by a Likert
scale and analyzed using statistical tools such as means, percentages and frequency
distribution tables and graphs.
The findings revealed that although different insurance firms have different areas which
they consider as their core competencies, there is a significant relationship between core
competencies and competitive advantage. The study also showed that the core
competencies had a significant impact on competitive advantage. It was further noted that
once insurance firms achieve a competitive advantage, which is considered as success,
they sustain the success by proper use of their known competencies.
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TABLE OF CONTENTS
Declaration .................................................................................................................................................... ii
Acknowledgements ...................................................................................................................................... iii
Dedication .....................................................................................................................................................iv
Abstract .......................................................................................................................................................... v
List of Tables.............................................................................................................................................. viii
List of Figures ...............................................................................................................................................ix
CHAPTER ONE ............................................................................................................................................ 1
1.1 Background of the Study ................................................................................................. 1
1.2 Core competencies ........................................................................................................... 4
1.3 Competitive advantage ..................................................................................................... 5
1.4 Overview of the Insurance Industry ................................................................................. 7
1.5 Research Problem ............................................................................................................ 9
1.6 Research Objectives ....................................................................................................... 12
1.7 Value of the Study ......................................................................................................... 13
CHAPTER TWO ......................................................................................................................................... 14
2.1 Introduction .................................................................................................................... 14
2.2 The Concept of Strategy ................................................................................................ 14
2.3 Core competence ............................................................................................................ 14
2.3.1 Unique Resources ........................................................................................................................ 16
2.3.2. Key Work Processes ................................................................................................................... 16
2.3.3. Knowledge Management Systems .............................................................................................. 16
2.3.4. Dynamic Capabilities.................................................................................................................. 17
2.3.5. Institutional Facilities (infrastructure) ........................................................................................ 17
2.3.6. Key staff skills ............................................................................................................................ 18
2.3.7. Strategic Focus ........................................................................................................................... 18
2.4. Competitive Advantage ................................................................................................. 19
2.5. Core Competence and competitive advantage ............................................................... 21
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CHAPTER THREE .................................................................................................................................... 24
3.1. Introduction ......................................................................................................................... 24
3.2. Research design .................................................................................................................. 24
3.3. Population of the Study ...................................................................................................... 24
3.4. Data Collection ................................................................................................................... 25
3.5. Data Analysis ..................................................................................................................... 25
CHAPTER FOUR ....................................................................................................................................... 27
4.1 Introduction .......................................................................................................................... 27
4.2 Demographic Profile of the Respondents ............................................................................ 27
4.3 Core competence of Insurance Companies .......................................................................... 29
4.4 Core competence as a source of competitive advantage ...................................................... 36
CHAPTER FIVE ......................................................................................................................................... 43
5.1 Introduction .......................................................................................................................... 43
5.2 Summary .............................................................................................................................. 43
5.3 Conclusion ........................................................................................................................... 46
5.4 Recommendation ................................................................................................................. 47
5.5 Suggestion for further research ............................................................................................ 48
REFERENCES ............................................................................................................................................ 49
APPENDIX I: Letter of Introduction ........................................................................................................ 54
APPENDIX II: Questionnaire .................................................................................................................... 55
APPENDIX III: List of Licensed Insurance Companies ......................................................................... 62
viii
List of Tables
Table 4.1: Length of time working in insurance company….………..….……………...28
Table 4.2: Effects of core competence to the Company………….……………………..31
Table 4.3: Importance of core competence to the insurance firms..……………………..33
Table 4.4: Core competence usage to achieve competitive advantage………………......34
Table 4.5: Use of core competence to sustain success……………………………….......35
Table 4.6: Company managers’ investment to achieve competitive advantage…………37
Table 4.7: Factors that influence competitive advantage in insurance firms….…………38
Table 4.8: Applicability of the factors in contributing to competitive advantage……….39
Table 4.9: Effects core competence on organizational competitive advantage.................41
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List of Figures
Figure 4.1: Length of existence of insurance companies………………………………29
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Building a capable organization is one of the top priorities of executive management of
any organization. Business organizations around the globe are fighting for success within
their sectors and hence becoming victims of their own success which leads to the need for
diversification. This leads to the creation of a different mix of talents and capabilities. In
Kenya, the insurance industry is no different.
Insurance companies operate in a very competitive environment where most of the
products are rarely differentiated, prices are heavily regulated and the distribution
channels are almost shared. Firms continuously strive for ways to attain sustainable
competitive advantage (SCA) over their peers. They need to count more on their
internally distinguished strengths to provide more added customer value, strong
differentiation and extendibility (Hamel and Prahalad, 1994). Internal distinguished
strengths are the organization’s core competencies. Core competencies aid in shaping the
future of organization. Thus, to achieve success, organization must possess core
competencies and capabilities that are unmatched by their industry rivals.
Competencies were developed from the early 1980s as a technique for measuring and
improving performance. They remain popular in some large, complex organizations
because they provide standardized and measurable processes for better consistency and
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control. With the intensity of competition ever growing, where on-time delivery, speed,
quality, and cost are considered essential ingredients to respond to customer needs,
organizational core competence is considered vital to all firms who wish to succeed.
Building organizational capabilities is considered to be the key success factor in doing
business. Rapid changes in the business environment require senior management to adopt
strategies that focus on both current success and to invest in those activities that will
promote a competitive advantage for future success.
Competitive advantage is achieved by companies through strategic planning and
management which is a continuous process that evaluates, controls and examines the
business, the competitors and the industry at large and sets goals and strategies to
overcome obstacles on their way to success.
The stiff competition has necessitated companies to apply competitive strategies to
maximize their profits and to compete against other insurance firms. Those with effective
strategies often set themselves apart from the competition. However, some companies
resort to adopt ‘a me too’ strategy thus positioning themselves close to their competitors
so that consumers can make a direct comparison when they make a purchase while other
companies strategize to position themselves away from their competitors. In the latter
case, some insurance firms take a deliberate decision to offer products or benefits that are
superior to those of its competitors. This is by developing unique products through
innovation and customized products which may be difficult for others to imitate or by the
time the competitors imitate the product features, the company has already gained from
the early bird theory.
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The core competence is a primary factor for strategy formulation as it is an important
source of profitability. One stream of research suggests core competencies to be at the
base of all competitive advantage. Companies are likely to be different in terms of their
abilities to select, build, deploy, and protect this core Competencies. These differences
are likely to yield differences in corporate performance. The concept of core competence
has been developed to support more efficient identification and utilization of an
organization's strength. The assumption is that core competencies are cumulative and
they change more slowly over time than products and markets (Gupta et al., 2009).
Therefore, building core competence becomes essential to competitive advantage because
advantages emanating from the product-price-performance-tradeoffs are almost short
term. Especially in an era where technologies are altering the existing boundaries of
business; advantage can last only through competence enjoyed at the very roots of
products. And only through expertise over several technologies and a complete command
on their infinite variety of users, a company can occupy a highly advantageous position
(Eris and Saatcioglu, 2006).
To build successful core competencies, organizations must put together a strong
management team and attract and retain employees with necessary experience, technical
skills and other soft skills. Such employees are also a source of competitive advantage.
The management must be prudent to be proactive about what customers will want and
build competencies and capabilities that will enable them achieve the corporate objective.
Thus, strategy has to move from competing for product or service leadership to
competing in competence leadership. Since the insurance business is generally dynamic,
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it is the responsibility of the firm’s management to continuously fine tune and sharpen
their competencies to achieve and maintain a competitive advantage over their rivals.
1.2 Core competencies
A core competency is a unique skill that creates a unique customer value. Core
competencies are valuable capabilities that are collective and unique in their
characteristics, as well as strategically flexible contributing towards the success of
potential business. An organizational core competency is an organization's strategic
strength. Thus, it is what it does best than its competitors and should never outsource.
Organizational core competencies, the unique resources of an organization, affect many
products and services and provide a competitive advantage in the market place (Johnson
& Scholes, 2002). Organizations use their unique resources which include their
capabilities and competencies to be ahead of their competition. Once an organization
identifies its unique area of excellence, its management require to come up with a
strategic plan of how to utilize its competencies to achieve great competitive advantage.
The identification and proper utilization of a firm’s core competence may help in creating
customer value; new product development, provision of innovative products to ensure
quality service delivery to their customers. The most important aspect of strategy
implementation is building teams with competencies and capabilities. Competencies
among insurance companies are built on individual or groups of intangible assets that
constitute and embody the firm’s capabilities, skills, knowledge, experience, people,
resources and intellectual property.
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While strong core competencies and competitive capabilities are majorly considered to be
useful during strategy execution, they are equally important avenues for securing a
competitive edge over rivals in situations where it is relatively easy for rivals to copy
smart strategies. Any time rivals can readily duplicate successful strategy features,
making it difficult or impossible to out strategize rivals and beat them in the marketplace
with a superior strategy. Since cutting-edge core competencies and competitive
capabilities represent resource strengths that are often time consuming and expensive for
rivals to match or trump, any competitive edge produced will tend to be sustainable and
pave the way for above-average company performance.
In essence, core competencies are those that cannot be easily duplicated by competitors;
however they also would be difficult to replace if a company found them destroyed or
damaged. They are the source of the company’s ability to deliver unique value to its
customers. They are not to be mistaken with “leading-edge technologies”, “world-class
processes”, or other “production-driven” definitions of distinctiveness. They are flexible
enough to straddle a variety of business functions, or product family technologies and
they are not tied to existing ways of doing business but are platforms for growth and
stimuli for growth (Harvey and Lusch, 1997).
1.3 Competitive advantage
According to Hamel and Prahalad (1990), the real competitive advantage lies in
integrating operations for the sake of hitting demand quality targets or meeting
specialized customer needs. The concept of core competence has implications at the
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strategic level of the firms and hence they should systematically work upon identifying
their core competencies and developing them for sustainable competitive advantage
(Srivastava, 2005). The best way to achieve lasting competitive advantage is to outdo
competitors by performing certain value chain activities in a superior fashion.
There are various factors that contribute to the performance and success of the insurance
companies in terms of volumes of sales and number of policies sold or signed up. One of
them is a service delivery level that is unmatched. However, it depends on other factors
like available resources, infrastructure, human resources skills and knowledge.
Like other players in the service, what happens in the insurance subsector is not much
different from the rest. It is largely dependent on the quality of service delivered to
customers. The unique difference is that insurance products are intangible which makes it
harder for the customer to immediately feel the results of the product purchased. In the
manufacturing sector or other normal product sale, there is a physical product exchange
while in insurance; it is a promise that is sold which is based on trust. All transactions
hinge on the pivotal principle of good faith.
Some insurance firms are doing better and even heavily expanding while others are either
stuck or are not well performing. The success in some is a sign that some internal
processes are being managed properly in these companies than it is in others. The internal
processes are their core competencies. These help companies distinguish their service or
product from those of their rivals. It also helps to reduce product development and
marketing costs which in the end contributes to achieve a competitive advantage.
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1.4 Overview of the Insurance Industry
The insurance industry is governed by the Insurance Act, Cap 487 of the Laws of Kenya.
Under the Act, the Insurance Regulatory Authority (I.R.A.) has been mandated to
regulate, supervise and develop the insurance industry in Kenya. Its strategic objectives
include to build a stable insurance industry, develop and grow the insurance industry and
also to strengthen institutional capacity within its scope.
The insurance industry plays a fundamental role in the Kenyan economy mainly as a
result of the amount of insurance premiums collected by the insurance firms, the scale of
investments and the essential social and economic role it plays by providing security to
property owners for both personal and business risks.
Information available at IRA, indicate that currently there are 45 insurance companies
and 2 locally incorporated reinsurance companies licensed to operate in Kenya. In
addition, there are 154 Licensed Brokers, 23 Medical Insurance Providers (MIPS), 26
Risk Surveyors, 4,205 Insurance Agents, 126 Insurance Investigators, 20 Loss Adjusters,
10 Risk Managers and 26 Motor Assessors.
It has been argued that insurance business in Kenya is profitable. According to Munda
(2012), some insurance companies have consistently recorded high profits which may be
attributed to their effective and strategic use of innovation and serious marketing
campaigns and strategies. It is also notable that, lately, no member of the Association of
Kenya Insurers (AKI) has closed shop. However, some general insurance companies are
reported to make losses, which means that their claims payout is in excess of their
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premium collections. This may be attributed to the significant losses in the motor and
medical insurance classes.
There are other challenges facing the insurance industry. These include, the dependence
on the people, the status of the market, laws governing insurance in Kenya and the lack of
proper communication of insurance information to the general public. There is also an
assumption that insurance is normally taken out for two main reasons; fear of losing and
the expectation to gain from insurance. Further, those who seek insurance especially the
long term do so in order to gain tax relief.
Further, due to the intangible nature of insurance, customer care, is not consider as an
important source of competitive advantage by insurance firms. This was evidenced by a
recent customer satisfaction tracker survey conducted by the Association of Kenya
Insurer’s (AKI). The results of the survey as presented by Akwir (2012), highlighted
several issues and among these, were; long and complicated compensation procedures,
lack of proper customer engagement in terms of frequency of communication and
accuracy of the information being communicated, use of appropriate channels and lack of
quality sensitization and the derivation for money.
Some insurance firms lack good corporate governance which is also a big factor
hampering the insurance industry growth in Kenya. Okumbe (2012) argues that, good
corporate governance will ensure that individual insurance companies provide effective
disclosure, continuous accountability and a broad based oversight framework to ensure
diligence, focus, growth and productivity in the industry for economic and social benefit
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of the individual policyholders, employees, shareholders, investors and all categories of
stakeholders.
Another critical issue is the low penetration level caused by lack of serious marketing and
awareness campaigns. There is not enough or proper research carried out by insurance
firms before launching new products, especially as to insurability of risks and setting
rates and premiums accordingly. Indeed, very few firms have a research and development
department with sufficient funding. The target market for insurance firms has for long
been the urban market and little focus has been given to small and medium enterprises.
1.5 Research Problem
Contemporary business theory argues that companies must compete to keep or gain
competitive advantage. Insurance companies also strive for competitive advantage. In
Kenya the insurance industry has about 45 main stream insurance companies competing
for almost the same target market. The distribution channel for insurance products is
intermediary-driven i.e. insurance brokers and agents. Banks are the latest entrants to join
the insurance distribution channel by offering bancassurance to their customers. All this
has led intense competition and insurance companies are now trying to position
themselves strategically to be able to compete effectively.
In such a competitive environment, insurance firms are employing various strategic tools
to achieve market leadership in order to gain a competitive advantage. Some companies
are going back to enhance their internal processes and capabilities thereby making them
more consistent and efficient by improving their processes and products. Core
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competencies play a key role to counter competitors’ strategies. How well a company
utilizes its core competencies to a large extent determines the eventual organizational
performance. The search for competitive advantage also depends on how customers
appreciate a firm’s value addition and how they make comparisons among the available
products or service. Therefore it becomes a necessity for a company’s management to
assess its core competencies.
In determining the core competencies of an organization, one needs to know the
underlying skill, ability, knowledge, experience, technology or process that enable an
insurance company to provide a unique set of products or services. High-performing
companies develop new core competencies and expand their existing ones to enter new
and future markets. A company at this level of functioning recognizes the needs and
wants of customers in new and emerging markets and develops the competencies
necessary to meet those needs and wants. As such, they serve to narrow the focus of the
firm’s forward strategy. In particular industry managers need to increase their knowledge
and understanding of core competencies. To be more competitive, firms need to operate
in a more outward/strategy driven way and develop a strategic architecture that will
enable their organization to develop the necessary core competencies.
In the insurance industry in Kenya, the products and services offered by insurance
companies are rarely differentiated. For example general insurance firms sell almost
similar traditional products. For instance, the standard motor insurance product is being
sold at a strictly regulated rate with a legal requirement of instant premium payment
before cover is considered effective. In addition, the rating of huge risks (commonly
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referred to as Listed Risks), is heavily controlled by IRA which consults with a panel of
AKI members to provide the rating guidelines hence a uniform rate across the industry
for the identified specific risk. Industry players are therefore not allowed to vary the rate
for compliance purposes. This leads to firms seeking other avenues of competition other
than price. As a result, insurance firms have to be smart to beat their competitors to the
business. Some companies then invoke their customer care skills, speedy service delivery
among others to beat the competition. These set of tools used by the firms are the
companies’ competencies and capabilities which help the gain competitive advantage.
Studies done locally on core competence in relation to competitive advantage include;
Wanyanga (2007), who studied the utilization of organization’s capabilities as an
operation strategy in the hotel industry in Kenya. His study noted that most hotels in the
country had not fully identified their strategic capabilities and always scanned the
external environment to identify the opportunities without identify their internal non-
imitable capabilities that will give them a competitive advantage.
A study by Ngugi (2011) looked at the strategic capabilities at the British Broadcasting
Corporation (BBC)–Africa. In his findings, the firm’s capabilities and resources available
to it must interact positively with the requirements of the firm’s markets and their
requirements be defined clearly and explicitly for the firm to achieve desired performance
results. As a result of the constant change in the business world, it was also found out that
the organizations strategic capabilities needed to continuously adapt to the changing
operating environment and the human resources play an important role towards the
realization of the same objective.
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Other related studies include Kak (2002) who examined the potential of and whether an
organization's SCA depends on the rareness and inimitability of its resources and
capabilities. Hafeez and Essmail (2007) also studied the evaluation of organization core
competences and associated personal competences using analytical hierarchy process and
established that firms with greater shared vision are more likely to enhance business
excellence and success as they utilize the shared vision and cooperation to build
innovative products and services, fulfill customer and market requirements, knows when
and how to attract, reward, and utilize teams to optimize results, acts to build trust,
inspire enthusiasm, encourage others, and help resolve conflicts and develop consensus in
creating high performance.
Therefore, it is evident from the foregoing studies, that there has not been any extensive
research conducted in the area of the role of core competence in competition more so in
respect to the Kenyan insurance market hence the question; what role does core
competence play to achieve competitive advantage by insurance firms in Kenya?
1.6 Research Objectives
The main objectives of the study were:-
(i) To establish the various core competencies in insurance companies in Kenya.
(ii) To ascertain the role of the identified competencies in achieving competitive
advantage
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1.7 Value of the Study
This study will important for insurance firms because they will be able to identify key
competencies, areas for investment and how to improve on the same to achieve a
competitive advantage. Insurance managers will gain insight into the competitiveness of
their core competences and find ways of how they can redesign the same with a view to
achieving competitive advantage by use of their own known core competences. Insurance
marketers too will find this study useful as they will be able to identify competitive
internal organizational competencies which can aid them to sustain organic growth and
ensure maximum retention of customers.
The research will form an invaluable source of reference for the IRA, especially in
coming up with policies to guide the industry in the development of good business
practices, having healthy competition and good corporate governance.
This study is expected to increase body of knowledge to the scholars in the service
industry and make them be in touch with how competitive advantage can be achieved
through embarking on improving organizational core competencies and capabilities.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
The purpose of this section is to provide a critical evaluation of the available research
evidence about effectiveness of core competencies in gaining or achieving competitive
advantage by organizations. Various core competencies will be enumerated. A summary
of the concept of core competency, competitive advantage and their relationship will be
discussed together with current research that has been carried out relating to the subject.
This will lead to the imminent gaps that require to be filled by this research.
2.2 The Concept of Strategy
Strategic Management is defining an organization’s strategy that will enable achieve
better performance and a competitive advantage. Strategies are ends that concern the
purpose and objectives of the organization. They are the things that organizations do, the
paths they follow and the decisions they take in order to reach certain points or level of
success (Thompson and Strickland, 2003).
2.3 Core competence
The core competence of a firm is the firm-specific knowledge system that exerts
competitive advantage, which may pertain to a knowledge base, a technological system, a
managerial system, and/or a norm and value system (Leonard and Barton 1992).
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Capabilities are characterized by significant barriers to duplication, whether these are in
the tacitness inherent in the skills of individuals or groups or in the complexity and
specificity of organizational routines. Collis (1994) postulated that capabilities are an
important source of advantage. Core competencies are particular strengths which provide
the fundamental basis for the provision of added value. They are the collective learning in
organizations, and involve how to coordinate diverse production skills and integrate
multiple streams of technologies. It is communication, an involvement and a deep
commitment to working across organizational boundaries.
A core competency is an organization’s strategic strength (Jardon and Martos, 2011). It
must be essential to corporate survival, invisible to competitors, difficult to imitate,
unique to the corporation, a mix of skills, resources and processes, sustainable over time,
greater than the competence of an individual, essential to the development of core
products, essential to the strategic vision and decision of the organization, marketable and
commercially valuable, and few in number (Tampoe, 1994).
Hamel and Prahalad (1994) went further and categorized core competence into market
access competencies which are skills that help place a firm in close proximity to its
customers (management of brand, sales and marketing, distribution and logistics,
technical support), integrity-related competencies which are the skills that allow a
company to do things much more quickly, with greater flexibility or with a higher caliber
of reliability than competitors (competencies such as, quality, cycle time management
and Just-In-Time) and functionality-related competencies which are skills that enable the
company to invest its services or products with unique functionality, which invest the
16
product with distinctive customer benefits, rather than merely making it incrementally
better. It is what the organization does best and what it should never outsource. The
strategic management classifies core competencies bases as: resource-based, competence-
based, and dynamic capability- based (Sanchez, 2004). Core competences sources can be:
2.3.1 Unique Resources
Resources represent inputs into a firm‘s production process. By themselves, resources do
not create a strategic advantage for the firm. Resources are the source of a firm‘s
capabilities. Resources represent inputs such as capital equipment, skills of employees,
brand names, finances and talented managers. Resources aid in development of
organizational core competencies and unique capabilities.
2.3.2. Key Work Processes
A process is any operation through which a set of inputs go through one or more steps
resulting in a more valuable set of outputs. Competitive success depends on transforming
a company‘s key processes into strategic capabilities that consistently provide superior
value to the customer (Akhavan and Jafari, 2006).
2.3.3. Knowledge Management Systems
Knowledge Management (KM) System refers to generally IT based system for managing
knowledge in organizations for supporting creation, capture, storage and dissemination of
information. The idea of a KM system is to enable employees to have ready access to the
17
organization's documented base of facts, sources of information, and solutions. Sharing
this information organization wide can lead to more effective engine design and it could
also lead to ideas for new or improved equipment. It comprises a range of strategies and
practices used in an organization to identify, create, represent, distribute, and enable
adoption of insights and experiences. Knowledge management system as a source of core
competence can be expressed as the capability to absorb new technology and in-house
technology development (Bozbura, 2007). The capability to absorb new technology
includes employee training, forecasting, innovation and technological needs satisfaction
(Chong, 2006).
2.3.4. Dynamic Capabilities
Capabilities are the firm's ability to utilize its resources effectively. Dynamic capability is
the firm’s ability to integrate, build and reconfigure internal and external competencies to
address rapidly changing environment (Teece et al., 1997). According to Dosi et al.,
(2000) dynamic capabilities are what enable the firm to quickly respond to change and
deploy resources accordingly, purposely integrated to achieve a desired end state.
2.3.5. Institutional Facilities (infrastructure)
Institutional facilities include both physical assets as well as non-physical "systems" such
as the body of rules and regulations governing companies such as: the administrative,
financial, and human resource systems, by which highly skilled and specialized
professionals are employed, trained, disciplined and advance in their careers.
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2.3.6. Key staff skills
The right people are the most important assets of any organization. Successful
organizations of the future will be those, which understand the link between their
business results and people. Individuals in the organization are valuable resources as they
generate ideas and turn them into actions (Schon, 2003). According to Hamel and
Prahalad (1994), core competence is defined as a bundle of skills and technologies. Skills
can often be divided into technical, functional, self-management skills in addition to
important personal attributes (hard-working, trustworthy, results-oriented, and decisive).
Employees with good problem solving skills that enable them to identify, remedy and
resolve business problems. It would be an added value to the company having employees
with entrepreneurship skills such as ability to think critically, analyze situations and be
able to identify business opportunity. Competence at the level of people is an underlying
characteristic which enables them to deliver superior performance in the given job, role
or situation.
2.3.7. Strategic Focus
This is the long-term goal that is ambitious, builds upon and stretches a firm‘s core
competencies, and draws from all levels of the organization. It requires the firm to
concentrate on a narrow, exclusive competitive segment (market niche), hoping to
achieve a local rather than industry wide competitive advantage. Hamel and Prahalad
(1994) declared that strategy needs to be more active and interactive; less arm chair
planning was needed. Their most well-known advance was the idea of core competency.
19
They showed how important it was to know the one or two key things that your company
does better than the competition. The provision of customer value is a source of SCA;
customers’ desired value changes, firms should monitor these changes by continuously
learning about customers (Hamel &Prahalad, 1990).
2.4. Competitive Advantage
A Competitive advantage is, in very basic words, a position a firm occupies against its
competitors. If a firm possesses resources and capabilities which are superior to those of
competitors, then as long as the firm adopts a strategy that utilizes these resources and
capabilities effectively and efficiently, it should be possible for it to establish a
Competitive advantage. Every organization is a victim of its own success, so there is a
need for diversification, which creates a different mix of talents and capabilities. It must
learn how to sustain competitive advantage; it should protect itself from being despoiled
and assimilate new sources of technologies, skills and core competencies.
According to Sadler (2003), the sustainability of competitive advantage depends on three
major characteristics of resources and capabilities: durability, transferability and
replicability. It is arguable to suggest that competitive advantage is at the heart of a firm's
performance as it is concerned with the interplay between the types of competitive
advantage, cost, differentiation, and the scope of the firm's activities. The value chain
plays an important role to diagnose and enhance competitive advantage (Porter, 1985).
20
A competitive advantage is meaningful if it is related to an attribute valued by the market.
Customers need to perceive a consistent difference in important attributes between the
producer’s products or services and those of its competitors. These differences must
relate to some product/delivery attributes which are among the key buying criteria for the
market. Product/delivery attributes are those variables that impact the customers’
perceptions of the product or service, its usefulness and its availability. Some examples
of such attributes are product quality, price and after-sale service. Key buying criteria are
those variables and criteria that customers use in making their purchase decisions. They
are different for different industries and different market segments (Clulow et al., 2003).
Gupta et al. (2009) point out, that resources alone are frequently not enough to generate
competitiveness over other firms.
In creating a competitive advantage, a firm needs the ability to make good use of
resources; defined as the capability to handle a given matter, and, as the ability grow over
time, to utilize available resources to create new resources, such as skills (through new
technology or software application), or to open new doors to the development of new
types of product. “A firm is said to have a competitive advantage when it is implementing
a value creating strategy not simultaneously being implemented by any current or
potential player” (Clulow et al., 2003).
To acquire competitive advantage in any market, a firm needs to be able to deliver a
given set of customer benefits at lower costs than competitors, or provide customers with
a bundle of benefits its rivals cannot match. To realize the potential that core
competencies create, a company must also have the imagination to envision markets that
21
do not yet exist and the ability to stake them out ahead of competition (Hamel and
Prahalad 1991). The basis for competitive advantage is the ability to create knowledge
and move it from one part of the organization to another.
2.5. Core Competence and competitive advantage
In a competitive market environment, there are various strategic tools used by various
firms to achieve market leadership position and gain a competitive advantage. Core
competencies play a key role to counter competitors’ strategies. How well a company
utilizes its core competencies to a large extent determines the eventual organizational
performance.
Therefore, an organization should provide a differentiating edge to be competitive. Due
to fierce market competition, senior management must understand not only the
technologies but also the competencies and motives of competitors. If an organization's
capabilities are scarce, defensible, or hard to imitate, these can form the basis for SCA
and surplus profits. The organizations pick up skills, abilities, and resources that are
unique to them, reflecting their particular path through history. These resources and
capabilities reflect the unique personalities, experiences, and relationship that exist only
in a single organization. Such resources can be the sources of SCA.
Firms which have ‘critical competence’ have well-developed methods of continuously
improving and upgrading their competencies. Learning is the only sustainable source of
advantage, so managers must link their core competence to different types of strategies
across time (Ray et al., 2004). Critical competence seeks to identify the unique
22
competencies of a firm through generic procedures. In this sense, though the core
competencies of firms are diverse, their critical competence is universal. The ability of a
firm to develop its strategic architecture is its ‘critical competence’ and, this emerges as a
prerequisite for achieving sustainable competitive advantage (Hamel, 1994).
A core competency must be continually invested in and upgraded if it is to serve as a
source of sustained competitive advantage (Helleloid and Simonin, 2004). Competencies
evolve through an iteration of doing, learning and doing some more. Each sequence
expands knowledge and enriches core competence. Indeed, one of the shared values of
organizations which have maintained long-term competencies is the continuous
refinement of their core skills. This process of experimentation and improvement is the
key to competitive success Senge (2006).
An organization's competitive advantage potential depends on the value, rareness, and
imitability of its resources and capabilities. However, to fully realize this potential, an
organization must also be organized to exploit its resources and capabilities. In a dynamic
world, only organizations that are able to continually build new strategic assets faster and
cheaper than those of their competitors will earn superior returns and create long term
competitive advantage. The competitive advantage to which core competencies lead is a
function of several forces from both the supply and the demand side (Kak, 2008). The
concept of core competence is distinct from both the traditional strategic thinking of
competing for market share and Porter’s (1985) low cost-differentiation strategy.
23
Overall, the responses to changes in the external environment must be formulated based
on the totality of the competitive situation. These actions require deep understanding of
how the various components of supply and demand relate to the core competence and the
competitive advantage it produces. A change in the regulatory environment may
significantly affect a firm's ability to bring new products to market. It is the combined
impact of the change in technology with all of these other factors which will determine
the actual impact of the environmental change on the firm's competitive posture.
Therefore, maintaining core competencies requires an understanding of the interaction of
a change in one aspect of the environment with other aspects of the organization (Chong,
2006).
Therefore, for sustainable competitive advantage, managers should invest time, effort,
and resources in developing their critical competence. The first step towards developing
critical competence is to understand that such a competence exists and realize that it
makes a difference to the firm’s competitive advantage. Organizations are always trying
to imitate the actions of other successful organizations (Lippman and Rumelt, 2002).
24
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Introduction
This section discusses how the research was conducted. It illustrates the research design,
the sources of information, the types of data collected, the method of data collection used
and the approach used to analysis the data.
3.2. Research design
The research design was a survey of all the insurance companies operating in Kenya. A
survey is the best method for this kind of study because after the survey the researcher is
able to make comparative analysis on how the various companies use their core
competencies to achieve or gain a competitive advantage. When all items of the
population are covered, no element of chance is left and highest accuracy is obtained.
Surveys are more efficient and economical than observations (Cooper and Emory, 1985).
3.3. Population of the Study
The population of the study consisted of all insurance companies licensed to transact
insurance business in Kenya by the government regulator; IRA (Appendix III). All 45
Insurance companies were approached.
25
3.4. Data Collection
The study used both primary and secondary data. Primary data was collected through a
questionnaire (Appendix II). The questionnaire consisted of both open and closed ended
questions designed to elicit specific responses for qualitative and quantitative analysis
respectively. The questionnaires were administered through mail survey (by using “drop
and pick later” method). The questionnaire had three parts. The first part was the
demographic profile of the respondent of the insurance company. Second part was
focused on core competencies and the last part enquiring about core competencies as a
source of competitive advantage.
Respondents were senior level managers of insurance companies responsible for
marketing and business development because they are tasked with ensuring that the
company maintains a lead or gains a higher competitive advantage over its rivals. A five
Likert Scale was used to score the responses in part one and two of the questionnaire. To
assist in accessing the targeted research respondents, the researcher was equipped with a
letter of introduction (Appendix I). Secondary data was collected from the findings of
published annual reports, strategic plan, articles and journals, previous studies conducted
by other parties and the World Wide Web of various insurance organizations.
3.5. Data Analysis
The data was analyzed by the use of descriptive statistics to summarize and relate
variables which were obtained from the administered questionnaires. The data was
classified, tabulated and summarized using descriptive measures, percentages and
26
frequency distribution tables while tables and graphs were used for presentation of the
findings. However, before the final analysis was performed, the data was cleaned to
eliminate discrepancies and thereafter classified on the basis of similarity after which it
was then tabulated. This method of analysis is most desirable as it enabled the researcher
to have an insight of the core competence used in achieving a competitive advantage.
27
CHAPTER FOUR
DATA ANALYSIS, INTERPRETATION OF THE RESULTS AND
DISCUSSION
4.1 Introduction
The research objective was to establish the use of core competencies as a strategic tool to
achieve competitive advantage by insurance firms in Kenya. This chapter presents the
analysis of the results and their interpretation and discussion of the results.
4.1.2. Response Rate
The survey targeted all the 45 licensed insurance companies in Kenya and questionnaires
were issued out to all. This number represented the insurance companies licensed by the
Insurance Regulatory Authority of Kenya. 35 questionnaires were received back and used
for subsequent analysis. This represented a response rate of 78%, which was a good
foundation upon which the analysis was conducted.
4.2 Demographic Profile of the Respondents
The demographic information considered in the study was the length of time the
respondents have worked in the insurance company and the time the company has been in
existence while conducting insurance business.
28
4.2.1 Length of Time working in the insurance company
The respondents were asked to indicate the duration they have worked in the company.
The findings are presented in Table 4.1.
Table 4.1: Length of Time working in the insurance firm
Frequency Percent Cumulative Percent
Less than 5 12 34.3 34.3
5 – 10 19 54.3 88.6
Over 10 4 11.4 100.0
Total 35 100.0
Source: Author
The result in Table 4.1 indicates that 34.3% have worked in the company for less than 5
years. The results also showed that 65.7% of the respondents have worked in the
insurance industry for over 5 years and thus are able to appreciate the importance of core
competence to their company and how to employ the same to achieve and gain a
competitive advantage against their competitors.
4.2.2 Length of existence of insurance companies
The question sought to establish the duration the insurance companies have been in
existence. The findings are presented in Figure 4.1.
Figure 4.1: Length of existence of insurance companies
Source: Author
The results in Figure 4.1 were that 91.4% of the insurance companies have been in
existence for more than 20 years. The results indicate that majority of the insurance
companies have been in existence for a long
possession of core competence which enable them to achieve competitive advantage over
their competitors.
4.3 Core competence
The core competencies are those unique capabilities, which usually span over multiple
products or markets. The insurance companies that responded listed various core
competencies with more than
product differentiation and information management systems as their known core
competencies. The other competencies listed with a lower frequency which amounted to
a combined 28% response
while the others competencies
29
of existence of insurance companies
The results in Figure 4.1 were that 91.4% of the insurance companies have been in
more than 20 years. The results indicate that majority of the insurance
companies have been in existence for a long time implying that they must be in
possession of core competence which enable them to achieve competitive advantage over
4.3 Core competence of Insurance Companies
The core competencies are those unique capabilities, which usually span over multiple
products or markets. The insurance companies that responded listed various core
with more than 65% indicating customer service, service
product differentiation and information management systems as their known core
competencies. The other competencies listed with a lower frequency which amounted to
a combined 28% response rate consider integrity, strong brand, staff skills and training
competencies listed were branch and regional network, time
The results in Figure 4.1 were that 91.4% of the insurance companies have been in
more than 20 years. The results indicate that majority of the insurance
that they must be in
possession of core competence which enable them to achieve competitive advantage over
The core competencies are those unique capabilities, which usually span over multiple
products or markets. The insurance companies that responded listed various core
service flexibility,
product differentiation and information management systems as their known core
competencies. The other competencies listed with a lower frequency which amounted to
ng brand, staff skills and training
listed were branch and regional network, time
30
management, risk evaluation and management, prudent and ethical practices, action
oriented, speed in settling of claims and issuance of policy documents.
4.3.1 Effects of company’s core competence
The respondents were requested to indicate the extent of agreement with the company’s
core competence in a five point Likert scale. The range was ‘strongly disagree (1)’ to
‘strongly agree’ (5). The scores of strongly disagree have been taken to represent a
variable which had mean score of 0 to 2.5 on the continuous Likert scale; (0< S.E <2.5).
The scores of ‘moderate’ have been taken to represent a variable with a mean score of 2.5
to 3.4 on the continuous Likert scale: (2.5 < M.E. <3.5) and the score of both agree and
strongly agree have been taken to represent a variable which had a mean score of 3.5 to
5.0 on a continuous Likert scale; (3.5 < L.E. <5.0). A standard deviation of > 0.9 implies
a significant difference on the impact of the variables among respondents. The results are
presented in Table 4.2.
31
Table 4.2: Effects of company’s core competence
Company’s core competence
Mean
Std.
Deviation
They are strategically flexible contributing toward the success
of potential business
4.31 0.76
It provides potential access to a wide variety of markets 4.23 0.77
It makes a significant contribution to the perceived customer
benefits of the end product
4.26 0.85
It has close relationships with customers and suppliers 4.14 0.84
They are flexible enough to straddle a variety of business
functions
3.97 0.78
They are collective and unique in their characteristics 3.94 0.59
They involve coordination of diverse production skills and
integrate multiple streams of technologies
3.75 0.62
They are difficult for competitors to imitate 3.12 1.16
Source: Author
The findings in Table 4.2 indicate that insurance firms strongly agree on the effect that
core competencies have to their various business operations. According to the
respondents, core competencies contribute greatly towards the success of potential
business (mean 4.31), significantly contribute towards perceived customer benefits of the
end product (mean 4.26), provides potential access to a wide variety of markets (mean
4.23), enabling closer relationship with customers and suppliers (mean 4.14.). They are
32
also flexible enough to straddle a variety of business functions (mean 3.97), are collective
and unique in their characteristics (mean 3.94) and they involve how to coordinate
diverse production skills and integrate multiple streams of technologies (mean 3.75).
The difference in views was evident on the respondents’ regarding how difficult they
consider their core competitors and whether they can be imitated by their rivals. Their
views were quite moderate (mean 3.12) with a high standard deviation (1.16). The
respondents’ reasons could have been subjective as what one considers as hard to imitate
could be viewed by another as easy to imitate. This could be informed by the existence of
a variety of similar insurance products in the market which may not be highly
differentiated. A comparison of responses on what their insurance firms considered as
core competencies, 65% listed their core competencies as customer service, service
flexibility, product differentiation and information management systems. This similarity
is an indicator of the view that they may not be doing anything different from each other.
4.3.2 Importance of core competence to the Insurance Companies
The respondents were asked to indicate the importance of core competences to their
company. The results are presented in Table 4.3.
33
Table 4.3: Importance of core competence to the Insurance Companies
Importance of core competence Mean Std. Deviation
Enables the company to be more efficient 4.36 0.80
Enables the company to focus on its operations 4.31 0.98
Enables the company to increase its customer
service
4.26 0.80
It aids the company in implementing its marketing
strategy
4.20 0.77
It results to the company doing the right things 4.01 0.96
Source: Author
The results in Table 4.3 indicate that insurance companies strongly agree that core
competences are an important tool to their organizations for achieving a competitive
advantage hence the high mean (mean of > 4). This is an indication of a unanimous view
by insurance firms that core competencies are important as they assist in executing
strategy and securing a competitive edge over rivals in situations where it is relatively
easy for rivals to copy smart strategies.
However, the views were varied on the relationship between core competencies and the
insurance companies’ focus on both its operations and doing the right things. The high
variation is evidenced by a high standard deviation of 0.96 and 0.98 on doing the right
things and focusing on operations respectively. This shows that despite their near
agreement on the importance of core competencies, respondents did not necessarily use
their core competencies in their firms to focus on their insurance operations or do the
34
right things. This could be due to the different strategies employed by insurance firms,
which include use of unscrupulous means by some firms to acquire huge tender
businesses or pricing strategies which may not necessarily have the approval of the
relevant authorities but are used nonetheless.
4.3.3 Core competence usage to achieve competitive advantage
The question sought to establish the extent to which companies’ uses core competence to
achieve competitive advantage. The results are presented in Table 4.4.
Table 4.4: Core competence usage to achieve competitive advantage
Core competence usage to achieve competitive advantage
Mean
Std.
Deviation
Integrity-related competencies (competencies such as, quality,
cycle time management and Just-In-Time)
4.14 0.91
Functionality-related competencies (skills that enable the
company to invest its services or products with unique
functionality and distinctive customer benefits)
3.91 0.89
Market access competencies (management of brand, sales and
marketing, distribution and logistics, technical support)
3.68 1.16
Source: Author
The results show that usage of core competencies by insurance companies’ to achieve
competitive advantage was to a great extent on integrity-related competencies (mean
4.14). Functionality-related competencies were also used to a fair extent (mean 3.91) and
35
market access competencies (mean 3.68). However, from the standard deviation, it is
notable that companies’ are highly varied in views on the use of all types of competencies
to gain competitive advantage but a great variance is on the use of competencies relating
to market access and integrity which portray a standard deviation of 1.16 and 0.91
respectively. This could be as a result of internal strategic programmes or focus.
4.3.4 Use of core competence to sustain success within the Insurance Industry
The respondents were to indicate the extent to which their company uses core
competencies to sustain their success. The results are presented in Table 4.5.
Table 4.5: Use of core competence to sustain success
Use of core competence to sustain success Mean Std. Deviation
Unique resources 3.74 1.04
Dynamic capabilities 3.83 1.20
Institutional facilities (infrastructure) 3.88 1.05
Knowledge management systems 3.91 1.07
Key work processes 4.03 0.82
Key staff skills 4.23 0.94
Strategic focus 4.29 0.86
Source: Author
The findings show that a majority of the insurance firms use strategic focus (mean 4.29),
key staff skills (mean 4.23) and key work processes (mean 4.03) as their main tools to
sustain success and knowledge management systems (mean 3.91). This is evident from
36
their high mean and hence collaborates with the response given under section 4.4 which
indicated a strong agreement among the respondents that they use integrity related
competencies to achieve competitive advantage. The other core competencies employed
by insurance firms include institutional facilities (infrastructure) (mean 3.89), dynamic
capabilities (mean 3.83) and unique resources mean 3.74. The companies’ views are
varied on how they use these factors to maintain successes implying the diversity in the
way these core competencies are used within the various insurance organizations to
sustain their business success. There is also a disparity of how insurance firms use both
internal work processes and strategy to sustain success within the industry.
However, the results show that the insurance companies use the core competencies to
sustain their success within the competitive insurance market.
4.4 Core competence as a source of competitive advantage
Core competencies are particular strengths relative to other organizations in the industry
which provide the fundamental basis for the provision of added value. Core competencies
are the collective learning in organizations, and involve how to coordinate diverse
production skills and integrate multiple streams of technologies.
4.4.1 Company managers’ investment to achieve competitive advantage
The respondents were asked to indicate the extent to which managers employ time, effort
and resources to achieve competitive advantage. The results are as shown in Table 4.6.
37
Table 4.6: Company managers’ investment to achieve competitive advantage
Company managers investment to achieve competitive
advantage Mean
Std.
Deviation
Time 4.27 0.81
Effort 4.35 0.73
Resources 4.43 0.70
Source: Author
The findings were that managers of the companies have invested resources (mean 4.43),
effort (mean 4.35) and time (mean 4.27) in order to achieve competitive advantage. The
implication is that these factors contribute immensely to the achievement of competitive
advantage in the insurance companies in Kenya.
4.4.2 Factors that influence competitive advantage in insurance firms
The respondents were requested to indicate the effect of the listed factors on their
company’s competitive advantage.
38
Table 4.7: Factors that influence competitive advantage in insurance firms
Effect of the factors on company’s competitive
advantage Mean Std. Deviation
Value 3.91 0.70
Rareness 2.97 0.89
Imitability of its resources and capabilities 3.23 0.70
Organizational exploitation of its resources and
capabilities
4.28 0.67
Source: Author
The findings in table 4.7 show that organizational exploitation of resources and
capabilities (mean 4.28) and value (mean 3.91) affected the competitive advantage of the
companies. Companies had a moderate view on the exploitation of the imitability of their
resources and capabilities (mean 3.23) and rareness (mean 2.97). It is important to
highlight that rareness affected the competitive advantage of the company due to the
similarity of the available insurance products and hence many companies may not be
using this attribute to gain or sustain competitive advantage. A core competency must be
continually invested in and upgraded if it is to serve as a source of sustained competitive
advantage.
4.4.3 Applicability of the factors in contributing to competitive advantage
The respondents were asked to indicate the applicability of the statements in contributing
to competitive advantage. The findings are presented in Table 4.8.
39
Table 4.8: Applicability of the factors in contributing to competitive advantage
Applicability of the factors in contributing to competitive
advantage Mean
Std.
Deviation
The company's product and service diversity is a source of
competitive advantage
4.10 1.03
The company has a competitive advantage over its rivals due
to its service flexibility
4.08 0.98
The superior quality of services is a source of competitive
advantage
4.06 0.87
The company has educated our staff in areas like product
knowledge and customer service
3.94 1.11
Speed of offering the service is one factor that led to achieving
competitive advantage
3.91 0.85
Unique resources are a source of sustained competitive
advantage
3.71 0.96
The added value is a source of competitive advantage 3.68 0.99
The company has achieved a competitive advantage through
its cost leadership strategy
3.68 0.95
Complexity of technology helped the company achieve
sustainable edge
3.66 0.97
The company has a competitive advantage over its rivals due
to its unique corporate culture
3.54 0.95
The company has achieved a competitive advantage through
its differentiation strategy
3.37 1.00
The company’s protection policy (in terms of patents,
copyrights, trademarks) is a source of competitive advantage
3.15 1.08
Source: Author
40
The findings show that competitive advantage of the company was contributed by the
company's product and service diversity (mean 4.10), service flexibility (mean 4.08),
superior quality of services (mean 4.06), educated staff in areas like product knowledge
and customer service (mean 3.94), speed of offering the service (mean 3.91), unique
resources (mean 3.71), added value (mean 3.68), cost leadership strategy (mean 3.68),
complexity of technology (mean 3.66), unique corporate culture (mean 3.54). The
companies were moderate on the extent to which they use differentiation strategy (mean
3.37) and the company’s protection policy (in terms of patents, copyrights, trademarks)
(mean 3.15) to achieve competitive advantage. The companies’ views on the applicability
of superior quality of services is a source of competitive advantage (standard deviation
0.87) and Speed of offering the service is one factor that led to achieving competitive
advantage (standard deviation 0.85) are almost agreed.
The above shows that maintaining a high level of service in customer, agent, and broker
interactions is one of the most effective ways for most insurance companies to compete
and differentiate themselves and probably increase profitability in a highly competitive
insurance market. It is also evident from the findings that insurance companies are
placing emphasis on their known core competencies which enable them to be more
efficient, provide better service, strategy execution among other key issues with an aim of
achieving great success within their industry. Insurance firms are exploiting their internal
resources and capabilities and ensuring that they provide value to their customers to
ahead of the pack. Many insurance executives are realizing that it is no longer business as
usual where it was traditionally the product or the price that they used to compete but
41
now it is about the level of engagement in terms service provision which means that the
company has to succeed in creating an intimate long-term relationship with their
customer. This is by having well trained and qualified staff that understand the
company’s products well and are able to deliver the service with zeal and speed.
4.4.4 Effect of core competence on organizational competitive advantage
The question sought to establish the effect of core competence on competitive advantage
of insurance firms. The results are presented in Table 4.9.
Table 4.9: Effect of core competence on organizational competitive advantage
Company’s core competence Mean Std. Deviation
Differentiation advantage 3.68 0.99
Cost leadership advantage 3.51 0.89
Time advantage 3.77 0.84
Profit 3.91 0.92
Growth 4.01 1.06
Sustainability 4.20 0.68
Source: Author
The findings in Table 4.9 indicate that the companies’ core competences affected the
companies’ sustainability (mean 4.20), growth (mean 4.01), profit (mean 3.91), time
42
advantage (mean 3.77), differentiation advantage (mean 3.68) and cost leadership
advantage (mean 3.51).
However, the insurance companies have varied views on the effect that profit (standard
deviation 0.92), differentiation advantage (standard deviation 0.99) and Growth (standard
deviation 1.06) have on the organizational competitive advantage. It is known that most
of the products available in the insurance market are closely related and hence
differentiation is rare.
43
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This section provides a summary of the research findings. It also provides a preview of
how insurance firms utilized their core competencies to achieve a competitive advantage.
It also provides suggestions and recommendations on key areas that need to considered
for further research.
5.2 Summary
The objective of the study was to establish which core competencies are used in the
insurance industry and whether these competencies are used by insurance firms in Kenya
to achieve competitive advantage. The study found out that insurance firms in Kenya give
great significance to their internal known core competencies.
It was noted that different insurance firms have different areas which they consider as
their core competencies. A majority of the firms consider customer service, flexibility,
information management systems and product differentiation as their main competencies.
Others competencies listed included prudent and ethical practices, staff skills and
training, strong brand, risk evaluation and management, a strong branch network (for
distribution), speed in claims settlement and timely issuance of insurance policy
documents.
44
However, in spite of core competencies being found to be collective and unique in their
characteristics, they were also noted to be important to the companies as they enabled
them to be more efficient, product focus, focus on its operations, increase its customer
service, and focus on its operations and doing the right things.
Core competencies contribute significantly to the creation of perceived customer benefits
and enables potential access strategies to a wide variety of markets. These enable the
company to have a close relationship with its customers. Core competencies involve how
to coordinate diverse production skills and integrate multiple streams of technologies
which enable insurance companies to straddle a variety of their business functions.
Maintaining core competencies requires an understanding of the interaction of a change
in one aspect of the environment with other aspects of the organization. The use of core
competences by the companies resulted in sustainability, growth, profit, time advantage,
differentiation advantage and cost leadership advantage.
The companies have been utilizing these core competencies to achieve competitive
advantage as they are strategically flexible contributing toward the success of potential
business. The ability of the companies to develop its strategic architecture is its critical
competence and, this emerges as a prerequisite for achieving sustainable competitive
advantage. Hence, for sustainable competitive advantage, the managers utilized their
time, effort, and resources in developing their critical competence.
Insurance firms achieve competitive advantage through product and service diversity,
service flexibility, offering a unique quality of services which is delivered with speed, use
45
of unique resources and qualified staff to provide superior customer service. Others that
were found to aid in the quest for achieving a competitive advantage include providing
value addition, use of cost leadership strategy and possessing modern technological
facilities which include information management systems. A unique corporate culture is
also important but not to a great extent.
Once an organization achieves or gains a competitive advantage, they will find ways of
sustaining that success. The study revealed that, to achieve this, insurance companies
consider key work processes, key staff skills and having a strategic focus as major
components. The other ways of sustaining success included knowledge management
systems, institutional facilities, dynamic capabilities and unique resources.
In order to sustain its success and have competitive advantage over its competitors, the
study found out that the companies were using strategic focus, key staff skills, key work
processes, knowledge management systems, institutional facilities (infrastructure),
dynamic capabilities and unique resources.
The study, thus, established that the companies have been using their core competence to
achieve competitive advantage. These competence were found to be the company's
product and service diversity, service flexibility, superior quality of services, qualified
staff in areas like product knowledge and customer service, speed of offering the service,
unique resources, added value, cost leadership strategy, complexity of technology and
unique corporate culture.
46
5.3 Conclusion
Due to fierce global competition, senior management must understand not only the
technologies but also the competencies and motives of competitors. The companies are
employing newer methods to turn more profitable by providing competitive customer
service which gives them a differentiating edge over their rivals. Successful strategy
implementation depends on competent employees and their capabilities. They are
important for your organization to develop core competencies. Hiring and retaining
competent employees help insurance firms to develop their core competencies which in
the end aid in achieving a competitive edge.
The study noted that insurance firms use their core competence to achieve competitive
advantage as they pick up skills, abilities, and resources that are unique to them,
reflecting their particular path through history. These resources and capabilities reflect
the unique personalities, experiences, and relationship that exist only in a single
organization. Such resources can be the sources of sustained competitive advantage, and
those imitating these resources will be at a cost disadvantage building them.
The core competences adopted by the insurance companies will in the long run determine
the survival of these companies as only organizations that are able to continually build
new strategic assets faster and cheaper than those of their competitors will earn superior
returns and create long term competitive advantage. In order to sustain success the
companies adopted strategic focus, key staff skills, key work processes, knowledge
management systems, institutional facilities (infrastructure), dynamic capabilities and
47
unique resources. The study found out that the companies achieved competitive
advantage through company's product and service diversity, service flexibility, superior
quality of services, educated staff in areas like product knowledge and customer service,
speed of offering the service, unique resources, added value, cost leadership strategy,
complexity of technology and unique corporate culture.
5.4 Recommendation
Foremost, the study found out that the companies have been using core competence to
achieve competitive advantage. It is therefore recommended that in order to sustain
competitive advantage, the companies must continually enhance their core competencies
and if constant renewal does not take place, other companies will imitate and make the
competencies which lead to competitive advantage obsolescence.
Secondly, the study established that the companies used different core competence to
achieve competitive advantage. It is recommended that the regulator should encourage
the insurance players to use their known core competencies to inculcate professionalism
in their operations. This will lead to financial stability and service consistency which will
lead to customer satisfaction and mutual benefit for all stakeholders. This will also mean
that there will be healthy competition which results a stable economy and avoid the
collapse of the companies.
48
5.5 Suggestion for further research
The study was undertaken on the insurance companies operating in Kenya. It is therefore
recommended that the study is replicated for other players in the insurance industry
especially insurance brokerage firms which are tasked with the responsibility of
distribution of insurance products and aiding in the penetration levels.
49
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www.akinsure.com
www.iik.info.ke
www.ira.go.ke
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APPENDIX I: Letter of Introduction
Dear Sir/Madam,
RE: MASTER OF BUSINESS ADMINISTRATION (M.B.A.) -STR ATEGIC
MANAGEMENT RESEARCH PROJECT
I am a postgraduate student at the University of Nairobi pursuing a degree in Master of
Business Administration where I am specializing in Strategic Management. Currently I
am carrying out a research project which is a requirement for the fulfillment of Part II for
the Award of M.B.A. degree.
The research is to establish how insurance firms in Kenya use core competencies as a
strategic tool to achieve sustainable competitive advantage.
In this regard, I kindly request you to assist in completing the research questionnaire. I
also take this opportunity to commit and guarantee that the information
collected/obtained from you is only for academic purposes and the same will be treated
with utmost confidentiality.
Your assistance will be highly appreciated.
Yours faithfully,
JONATHAN OMBATI MARUCHA
STUDENT REG. NO. D61/61884/2010
55
APPENDIX II: Questionnaire
Please give answers in the spaces provided and tick (√ ) in the box that matches your
response to the questions where applicable.
PART A: DEMOGRAPHIC AND RESPONDENTS PROFILE
1. Name of the insurance company ……………………………………………………….
2. Please give your name below …………………………………………………………
3. What is your designation ……………………………………………………………..
4. How many years have you worked in the insurance industry ……………………….
5. How many years have you worked in this Insurance Company?
a) Less than five years ( ) c) Over 10 years ( )
b) 5-10 years ( )
6. For how long has your insurance company been in operation in Kenya?
a) Less than 5 years ( ) d) 16 – 20 years ( )
b) 6 – 10 years ( ) e) Over 20 years ( )
c) 11 – 15 years ( )
Part B: Core Competence
1. Please list what you consider as your organization’s core competencies.
a) …………………………..
b) ………………………….
c) ………………………….
d) …………………………..
56
2. To what extent do you agree with the following regarding your company’s core
competence? Use 1- Strongly Disagree, 2- Disagree, 3- Moderate, 4- Agree and 5-
strongly agree.
1 2 3 4 5
They are collective and unique in their characteristics
They are strategically flexible contributing toward the success of
potential business
The company’s core competence are difficult for competitors to
imitate
The company’s core competence provides potential access to a
wide variety of markets
The company’s core competence makes a significant contribution
to the perceived customer benefits of the end product
The company’s core competence are flexible enough to straddle a
variety of business functions
It involve how to coordinate diverse production skills and integrate
multiple streams of technologies
The company’s core competence has close relationships with
customers and suppliers
57
3. How are core competences important to your company? Use 1- Strongly Disagree, 2-
Disagree, 3- Moderate, 4- Agree and 5-strongly agree.
1 2 3 4 5
Enables the company to focus on its operations
Enables the company to be more efficient, product focus
Enables the company to increase its customer service
It results to the company doing the right things
It aids the company in implementing its marketing strategy
4. To what extent does your company uses the following core competences in order to
achieve competitive advantage? Use 1-Not at all, 2-Small extent, 3-Moderate extent, 4-
Great extent and 5-Very great extent.
1 2 3 4 5
Market access competencies (management of brand, sales and
marketing, distribution and logistics, technical support)
Integrity-related competencies (competencies such as, quality, cycle
time management and Just-In-Time)
Functionality-related competencies which are the skills which
enable the company to invest its services or products with unique
functionality and distinctive customer benefits
58
5. To what extent does your company uses the following core competences to sustain its
success? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very
great extent.
1 2 3 4 5
Unique Resources
Dynamic Capabilities
Institutional Facilities (infrastructure)
Knowledge Management Systems
Key Work Processes
Key staff skills
Strategic Focus
Part C: Core competence as a source of competitive advantage
6. To what extent do your company managers invest the following in order to achieve
competitive advantage? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great
extent and 5-Very great extent.
1 2 3 4 5
Time
Effort
Resources
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7. To what extent has the following factors affected the company’s competitive
advantage? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-
Very great extent.
1 2 3 4 5
Value
Rareness
Imitability of its resources and capabilities
Organization exploitation of its resources and capabilities
8. To what extent are the following statements applicable in contributing to
competitive advantage? Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and
5-Very great extent.
1 2 3 4 5
Our company has a competitive advantage over its rivals due to
its service flexibility
Our company has a competitive advantage over its rivals due to
its unique corporate culture
Our company has achieved a competitive advantage through its
cost leadership strategy
Our company has achieved a competitive advantage through its
60
differentiation strategy
Complexity of technology helped our company achieve
sustainable edge
Speed of offering the service is one factor that led to achieving
competitive advantage
Unique resources are a source of sustained competitive
advantage in our company
The added value is a source of competitive advantage
The superior quality of services is a source of competitive
advantage
Our company's product and service diversity is a source of
competitive advantage
Our company’s protection policy (in terms of patents,
copyrights, trademarks) is a source of competitive advantage
Our company has educated staff in areas of product knowledge
and customer service
9. To what extent has the company’s core competences affected the following
organizational competitive advantage?
61
Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very great
extent.
1 2 3 4 5
Differentiation Advantage
Cost Leadership Advantage
Time Advantage
Profit
Growth
Sustainability
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APPENDIX III: List of Licensed Insurance Companies
Name
1 APA Insurance Limited
2 Africa Merchant Assurance Company Limited
3 Apollo Life Assurance Limited
4 British-American Insurance Company (K) Limited,
5 Cannon Assurance Limited
6 CFC Life Assurance Limited
7 Chartis Kenya Insurance Company Limited
8 CIC General Insurance Limited
9 CIC Life Assurance Limited
10 Concord Insurance Company Limited
11 Corporate Insurance Company Limited
12 Directline Assurance Company Limited
13 Fidelity Shield Insurance Company Limited
14 First Assurance Company Limited
15 GA Insurance Limited
16 Gateway Insurance Company Limited
17 Geminia Insurance Company Limited
18 Heritage Insurance Company Limited
19 ICEA LION General Insurance Company Limited
20 ICEA Life Assurance Company Limited
21 Intra Africa Assurance Company Limited
22 Invesco Assurance Company Limited
23 Jubilee Insurance Company Limited
24 Kenindia Assurance Company Limited
25 Kenya Orient Insurance Limited
63
26 Kenyan Alliance Insurance Company Limited
27 Madison Insurance Company Kenya Limited
28 Mayfair Insurance Company Limited
29 Mercantile Insurance Company Limited
30 Metropolitan Life Kenya Limited
31 Occidental Insurance Company Limited
32 Old Mutual Life Assurance Company Limited
33 Pacis Insurance Company Limited
34 Pan Africa Life Assurance Limited
35 Phoenix of East Africa Assurance Company Limited
37 Pioneer Assurance Company Limited
38 REAL Insurance Company Limited
39 Shield Assurance Company Limited
40 Takaful Insurance of Africa
41 Tausi Assurance Company Limited
42 Trident Insurance Company Limited
43 UAP General Insurance Company Limited
44 UAP Life Assurance Company Limited
45 Xplico Insurance Company Limited
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